Operators, Reconnect

In our cover story this week, technology editor Todd Spangler reveals a tiny yet growing segment of the population that may soon change the way some of the largest media companies do business.

Viewers, empowered by new online tools, have suddenly discovered an alternative to paying a large company a monthly fee. By surfing online with specialized video-search engines for new sites bursting with TV shows, viewers can now watch on-demand TV entertainment. Likewise, the addition of free over-the-air digital channels, fueled by the digital transition in February, give viewers a lifeline of local news with a choice of hit shows.

Cable operators spend millions of dollars defending themselves in battles with satellite companies and telcos. But I can assure you that neither will affect them nearly as much as not listening to subscribers. Consumers want more choice, better service and reasonable prices.

Operators can prevent defections by giving current subscribers the things they're crying for. Doesn't loyalty trump all? For starters, more on-demand viewing. TV viewing increasingly is less dependent on schedules and more affected by time-shifting options. We're headed to an on-demand world, like it or not. Cable operators are moving in that direction — Comcast's Fancast offer an impressive array of shows from TV, online, DVD and theaters. And Time Warner Cable's Start Over service scratches a definite consumer itch.

On-demand viewing could get a big boost from the recent U.S. Court of Appeals decision granting Cablevision the right to use network DVRs. So-called network DVRs —where the movies are stored on giant server farms as opposed to the boxes inside cable viewers' homes — offer operators an infinitely better way to provide more choices.

Viewers are also angry at price hikes, something virtually every big cable operators is planning for 2009. Last week, the FCC echoed complaints by Consumers Union that cable operators were gouging consumers. “Over the last decade, average cable rates have more than doubled. And now cable companies are charging consumers more but consumers are receiving less. We have also received complaints that cable companies are moving channels to a digital-only tier and charging consumers the same monthly rate for a reduced number of channels.

Since most viewing in TV homes is from a handful of broadcast and cable networks. Why not offer a low-cost core package of popular cable channels and local broadcast channels to address lower income households?

Finally, for all the talk about improvement in cable service, it's still among the lowest-rated in recent large consumer rankings. Operators must spend the money to fix it — one negative experience can translate into many lost customers on the Web. Customer-service extends beyond phone manners — it's how managers see their business. Many cable operators, for example, charge extra for battery backup for phone service in the event of a power outage. Many consumers view this as predatory. “You're charging me for an item that should be free!”

Cable executives have the luxury of scoffing at the notion that somehow their dominance is threatened by a few floaters off the grid. But they could be the start of something big.